Issues with Markets, Distributive Justice & Agency Problems in International Environmental Law (Hidden Economics & Environmental Justice)

1/5 In Unit 7 we shall cover some hidden economics you might otherwise encounter in the condensed version of an undergraduate environmental and natural resource economics course. But to be clear, there are essentially three technical take-aways. The first technical take-away is that most environmental economics exercises cast outputs as services rather than goods in neo-classical economics terms. For example, domestic farmers often criticize regulations that require wetlands on their farms be left in place (because they would prefer to fill them in and grow crops on the filled-in land). Meanwhile, environmental engineers might view the wetland itself as a filtering system for fertilizer run-off and the like, which cleanses the polluted water (too many nitrates) before it seeps down into the water table from which the local community draws its water via wells. It is also possible that there might be recreational uses, such as transit points for migratory waterfowl (so Ducks Unlimited hunters would be excited too). So the insight is that you are more often dealing with environmental assets in terms of services drawn from them, rather than goods or assets per se. And jumping ahead, at the borderline between economics and the environment on a systems engineering basis scientists are working on links between biodiversity and “ecosystem services” as essential for human life and well-being.

At least two out of the three competing uses above are better conceptualized as “services” rather than “goods,” and ecosystem services would encompass all three. The environmental engineers and Ducks Unlimited members would derive filtering of fertilizer run-off and recreation from the wetlands as environmental asset, respectively, while even the farmer using any filled-in wetlands as factor of production employs the land more to enable the growth of crops. In parallel, there is typically not a ready market to determine the value of environmental filtering (e.g., “clean” groundwater), or for that matter local recreational services (e.g., duck hunting). Economists might ask correspondingly whether these constitute public goods, beyond traditional neoclassical economics keyed off of property rights and efficiency concerns? More often than not, valuation in large-scale environmental litigation is contingent. For example, in the Exxon Valdez litigation, the chief question ultimately lay in contingently valuing the environment degraded by the massive oil tanker spill, since liability was quickly conceded. The difficulty was figuring out how much are numerous seals, penguins, and pristine arctic ice cathedral glacier visages really worth on the basis that citizens as “lower 48” residents might want to visit them in the future, as opposed to calculating some subsistence value to local Inuit hunters and interference with catches of commercial fishing interests in the famously dangerous Bering Sea fishing industry. Is this treating damages as being more to a public good, and what and whose rights might be entailed in asking “lower 48” residents how much they might consider paying as theoretical tourists? So, after all, what is a beautiful Himalayan mountain landscape worth, distinguishing it from constituent properties as too rocky and cold to be arable?

Is it more realistic to rely on hypothetical values reaching for outsider tourism, or is it more insightful to value based upon ecosystem services provided to locals?  If treated as an ecosystem services problem, said services are typically conceptualized as including provisioning services (provision of food, fresh water, fuel, fiber and similar goods), regulating services (encompassing climate, water and disease regulation as well as pollination–  so filtering ground water would fit), supporting services (such as soil formation and nutrient cycling) and cultural services (reaching from educational, aesthetical, cultural heritage values as well as recreation and tourism–  so Ducks Unlimited and glacier cruises both would fit here).

And is restraining the farmer from filling in the wetlands a taking of his property? Reaching back to Unit 3 (Sagasti & Colby), it depends in part on whether your frame of reference may be “frontier economics” versus perhaps “environmental protection” or “resource management.” But as a legal matter, unless all zoning law is unconstitutional, regulating to preserve community resources like groundwater should be permissible.

2/5 The second technical take-away is to realize that economists, also environmental economists, typically target a unitary setting that, in the alternative, assumes a single market and no subdivisions (so no differing countries, rich and poor), and as a result “international environmental economics” for the longest time was more about positive modelling currently applied to international environmental issues like climate change. This differed from international economic law being coextensive with well-established monetary and trade law topics in international economics. So international environmental economics is relatively underdeveloped, and typically relies on a variety of hidden assumptions, whether you contemplate neoclassical economic or ecosystem services approaches. They tend to assume perfect markets, meanwhile the core of modern environmental economics in the context of climate change employs concepts like free riders (for example, which countries might pay what carbon costs, contemplating differential prices), externalities presupposing market failure (for example carbon taxes generally embodying social costs of fossil fuels) and a general lack of cost internalization (to be countered generally by “polluter pays” principles).

The practical cross-over problem visible already in Dr Mahatir’s speech in Unit 1 is that climate change in particular tends to be cast as an “us” vs “them” issue between rich industrialized countries seeking to freeze GHG parts per million to preserve a comfortably attractive world, and poorer developing countries desiring to become richer and so wanting to increase GHG emissions as part of their industrialization strategy to achieve at least what they believe to be an acceptable minimum standard of economic development. This eventually raises distributive justice issues, of the type referred to traditionally under the rubric of environmental or climate justice. Environmental Justice (what it means when polluting industries are always sited on the wrong side of the railroad tracks) recently moved to the fore domestically, see Kelley, “Harris, Ocasio-Cortez introduce environmental justice bill: The new Climate Equity Act of 2020 would hold Congress accountable for the effects of its environmental policies” (The Hill, 08/06/20; providing for scoring of bills’ effects on minority and poorer communities), at https://thehill.com/changing-america/sustainability/climate-change/510924-harris-ocasio-cortez-introduce-environmental. So it might become more prominent theoretically in international environmental law affairs like treaty negotiations, but has not found too much resonance thus far with the governments of developed countries, as witnessed by resistance like the US ultimately rejecting LOS and CBD obligations implementing distributive justice claims.

3/5 The third technical take-away was that it called to the fore that traditional neoclassical (environmental) economics focused primarily on “efficiency” initially. (It downplayed the dual problems of market failure and delineating property rights, particularly due to externalities.) More recently, “sustainability” is understood normally as an intergenerational problem, namely what do we owe our children’s children, not whether we owe anything to our poorer neighbors in our own generation. So even focusing on “sustainability” does not automatically answer questions about a “fair” distribution, instead advantaging “efficiency” or aggregate welfare over time. Here efficiency refers to the idea that the resolution produces in utilitarian terms the greatest aggregate net benefit, without asking questions about how that benefit may be distributed in a population. Meanwhile, an environmentalist “maxi” position might reject the very idea of traditional welfare maximization strategies in the environmental policy toolbox like tradeable emissions permits to lower aggregate costs of compliance in lowering emissions to a specific level (essentially based on the claim that it is immoral, not to mention self-defeating, to create property rights in the emission of pollutants). But, from a technical viewpoint, those “property rights” are precisely the technical mechanism employed to create the viable trading market upon which the efficiency strategy rests. Absent the trading market, you are probably thrown back on more speculative strategies like contingent valuation, or more expensive strategies like command and control regulation again.

Even traditional economists, however, would freely admit that there is a difference between employing positive economic analysis analytically to describe the actions of people and the impact of those actions on the environment understood as an asset, versus normative economics providing guidance on how optimal service flows can be defined and achieved (which seems closer to the ecosystems services approach). However, normative economics is traditionally described for environmental economics in terms of involving concerns about efficiency, on the one hand, versus sustainability, on the other hand (except sustainability here is interpreted as intergenerational, rather than intragenerational). But just excluding something from your definitions does not necessarily make it go away, as witnessed by the essentially political claim to environmental justice raised by Mahatir in the early 1990s, and Harris and Ocasio-Cortez most recently. (We designate such a claim as political because of who raised the issue, but you could equally refer to it as a moral claim, no value judgment intended. …)

4/5 The theoretical problem is whether we traditionally defined distributive justice out of normative environmental economics (economists might say, oh, it is political economy, and we economists only do economics, so by definition “distributive justice” cannot be part of “technical economics”). Distributive justice is typically viewed as more of a philosophical discussion, meanwhile in law we presumably are looking for a way to achieve governance, rather than simply debating issues (like we train you in law school). Without thereby launching ourselves on an entire law and philosophy course, let us admit that different class members probably see things different ways. To sketch out a few initial possibilities, however, the egalitarian strain of distributive justice traditionally might seek “equality.” But equality can equally be defined in terms of equality of opportunity versus equality of outcome. There are many conservatives, mostly libertarians (adhering to ideas about it conflicting with liberty and property), who would reject much environmental regulation, but believe strongly in equality of opportunity.

The problem in that sense is how do you define equality of opportunity? Is it countries putting the same amount of carbon out your smokestacks now (after the industrialized countries have already substantially raised carbon levels since the Industrial Revolution, which was Dr. Mahatir’s viewpoint)? Or do you calculate emissions in terms of responsibility reaching back to the Industrial Revolution to account for the historical past? Or is it defined as countries being entitled to some kind of per capita allocation which would benefit densely populated states (per capita energy consumption and so carbon generation by inhabitants of most industrialized countries in markedly higher than that of the much more numerous inhabitants of major developing countries (remember the map of the world by 1995 GDP?)? Or what? There might be a tendency to reach for contractual explanations by analogy to Rawls, except there has been little movement in the world of treaties thus far, and raw self-interest does not work much better to the extent the ultimate result of no deal if everyone is put off by the exercise would presumably lead to every country being worse off.

5/5 Beyond distributive justice issues, the agency problem and analysis in international environmental law is prominent based upon the observation of the heavy involvement of environmental NGOs in attempts to make law reaching back to its earliest beginnings. The implicit claim is that the environmental NGOs presumably know better than governments what the environmental interests of their citizens demand, except governments claim both that their state character and representative democracy is on their side. But the weakness of constraints on self-interested agents is a common theme in economic analysis that you may remember from courses like business corporations.

Pursuing environmental economics as analytical tool, is the world as we know it invariably coming to an end, or is the world just full of Chicken Littles telling us that the sky is falling? Focusing on a little narrative history may provide some perspective of environmental economics and dominant narratives reaching back, putting us back into the timeline represented by the 1972 Stockholm Declaration, 1992 Rio Declaration and 2002 Johannesburg Declaration (followed by the Kyoto Protocol effective in 2005, and the 2015 Paris Agreement). Looking back, the chief concern in the 1970s-80s involved actually two competing environmental narratives drawn more out of the natural than social sciences. Their frame of reference was not GHGs, although atmospheric chemistry was already on the CFC ozone-depletion agenda that would yield the Montreal Protocol in 1987. The chief concern involved modelling depletion of non-renewable natural resources and population pressure tied to the emergence of the modern developing world as economic powerhouse(s).

The juxtaposition involved the limits to growth discussion associated on the one hand with Jay Forrester of MIT and computer modelling in a 1972 study entitled The Limits to Growth. Forrester argued on the basis of systems dynamics and feedback loops that within 100 years society would run out of the non-renewable resources on which its industrial base depended (so there was, figuratively speaking, no place at the inn for the developing countries effectively to grow economically). The counterpoint was provided in a 1976 book by Herman Kahn entitled The Next 200 Years: A Scenario for America and the World. It essentially argued that continuing technological progress would push back the natural limits indefinitely (so there would be, figuratively speaking, a new world for developing and developed countries both to grow into). In a nutshell, the whole discussion seemingly boiled down to the pessimists versus the optimists, in modelling terms. For today’s environmental discussions invariably focused on issues like climate change and carbon generation, the humorous insight was that the older 1970s-80s arguments were focused on non-renewables, and the chief concern was that we might run out of resources like … fossil fuels.

It obviously did not happen that way, and the new natural science modelling approach now assumes based upon various prognostications that we are rapidly moving from a world of mitigating climate change (meaning examining choices to cut back on GHG emissions to limit climate change), to a world of adapting to climate change (meaning locally all those expensive adaptations like a minimum $2 billion infrastructure spend to address increasing flooding in Charleston tied to sea level rise, as well as the increasing danger of storm surges, etc.). Accepting the natural science consensus does not infer the end of the world. Instead, it simply points to the difficult nature of choices to be made, where environmental economics is another analytical tool. To that extent environmental economics as the study of allocating limited resources is simply another tool in the governance exercise of trying to make appropriate international environmental law. But you need to comprehend equally that the details of environmental economics (and regulation) are often not value-neutral, even understood from a technical perspective.  So please remind yourself in passing of the current spectrum of possibilities, by revisiting again in our Unit 3 materials the table at pages 186-89 of the Sagasti & Colby ecodevelopment piece.

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